Australian dollar volatility looks set to resume on Friday

The Australian dollar remained under pressure overnight, weighed down by investor caution before the release of key economic statements from Australia and the US on Friday.

After hitting a high of .7513 in early European trade, the AUD/USD sank to as low .7451, weighed down by renewed US dollar strength. It eventually closed the session buying .7464, up fractionally from Wednesday’s closing level.

AUD/USD 5-Minute Chart

On Friday, the focus for investors will be on the release of the Reserve Bank of Australia’s statement on monetary policy (SOMP) at 11.30am AEDT, along with the all-important US non-farm payrolls report at 10.30pm AEST.

“Today’s RBA statement on monetary policy will reaffirm the central bank’s dovish stance and limit AUD relief rallies,” said Elias Haddad, FX strategist at the CBA. “In terms of the economic forecasts, the RBA will revise down their inflation forecasts but there is a good chance that they have to revise up GDP.”

As a refresher, here are the RBA’s economic forecasts offered in its prior SOMP in February.

With markets and economists continuing to favour a further rate cut from the RBA, perhaps as early as August, the inflation forecasts will be closely scrutinised by markets, and likely impact the Aussie.

A downgrade is expected following last week’s soft CPI report, the only question is by how far.

After the release of SOMP, attention will switch to the release of the April non-farm payrolls report in the US, something that will likely see market volumes dissipate ahead of the event.

“Tonight’s US April labour market report will shed more light on the pace of the Fed’s normalisation path,” says Haddad.

“The main market reaction and focus over recent months has been on the US wages data. As such, USD upside will be limited if US average weekly earnings growth is weaker than consensus of 2.4%pa because it would further delay the Fed’s normalisation process.

“In our view, US average weekly earnings growth risks underwhelming expectations in April because of low US inflation expectations and modest labour market slack.”

As the key jobs report for the largest economy in the world, the payrolls will likely generate significant volatility across markets, including in the Australian dollar.

Here’s the current Aussie dollar scoreboard.

AUD/USD 0.7461 , -0.0003 , -0.04%

AUD/JPY 80.03 , -0.01 , -0.01%

AUD/CNH 4.8632 , -0.0021 , -0.04%

AUD/EUR 0.6542 , -0.0002 , -0.03%

AUD/GBP 0.5151 , 0 , 0.00%

AUD/NZD 1.0830 , -0.0009 , -0.08%

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